A crucial segment of the artificial intelligence market faced significant losses on Wednesday, leading traders to anticipate further declines.
Stocks of neocloud providers—companies delivering GPU access as a service for AI—experienced a sharp downturn Wednesday. This followed a continuous ascent in debt yields for Nvidia-supported CoreWeave. A report from The Financial Times, indicating CoreWeave's pursuit of additional debt financing from insurance firms, also seemed to exacerbate the situation.
VIDEO: Options Action: AI's neocloud problem (1:47)
Concurrently, on X (formerly Twitter), Social Capital founder Chamath Palihapitiya sparked debate regarding a private credit bubble, sharing a screenshot revealing CoreWeave's bonds yielding 15%. Elon Musk reacted with "yikes." CoreWeave's stock plummeted by 15%. Other key players in the data center expansion, such as Nebius Group and Iren, also saw their shares drop by up to 10%.
Options trading volume for CoreWeave skyrocketed to over seven times its 30-day average, with Nebius seeing nearly four times and Iren double their usual volume. While Nebius and Iren had more calls traded than puts, Cboe LiveVol data suggested that a greater proportion of these calls were initiated by sellers rather than buyers, indicating a bearish sentiment.
The most significant bearish activity was observed in CoreWeave, where traders acquired nearly 200,000 put options, significantly outpacing the 106,000 call options traded.
A notable trade occurred around 10 a.m. ET, involving the establishment of a new position of 26,000 put options with a 37.5-strike price and a December 18 expiration. These options traded close to the ask price, indicating they were likely bought, as per SpotGamma data.
"These are what we call 'bubble puts'," explained Scott Bauer, CEO of Chicago-based Prosper Trading Academy. "They aren't speculative buys expecting a total collapse. Instead, they represent a strategic hedge for positions in highly correlated stocks or even the Nasdaq, given CoreWeave's central role in the AI sector."
These contracts were priced at 74 cents each, totaling $1.9 million. For them to be profitable, CoreWeave's value would need to drop by an additional 42% within the next two months. This substantial position is new, as there were only slightly over 1,000 open contracts before this transaction.
CoreWeave completed its IPO in March 2025, with shares initially priced at $40.
Bauer speculated, "This could be an early investor or an IPO participant establishing a hedge at their breakeven point. Perhaps similar protection wasn't available through other individual stocks, broader indices, or alternative financial instruments."
